Financial Services Committee

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FSC Majority | Week in Review

Posted by
Staff
on
May 15, 2015

False Narrative of Financial Crisis Led to Wrong Remedy: D0dd-Frank

The Oversight and Investigations Subcommittee, chaired by Rep. Sean Duffy (R-WI), heard from witnesses at a hearing on Wednesday that the 2008 financial crisis was caused by bad government policies and regulatory incompetence, not a “lack of regulations” or “market failure.” Washington’s inaccurate diagnosis of the causes led to the wrong response: the 2,300-page Dodd-Frank Act and its burdensome regulations.

As a consequence of hastily enacting Dodd-Frank, Washington has piled on more regulations that are smothering community financial institutions, other small businesses and consumers who are losing access to affordable credit and choice. Far from “lifting the economy,” as Dodd-Frank supporters claimed the Act would do, Americans remains stuck in the slowest and weakest recovery of their lifetimes.

"Those who supported Dodd-Frank have been more concerned with helping special interests in Washington than their constituents back home, and the proof is in the numbers. They don't lie," saidChairman Duffy in his opening statement. “Fewer people have returned to the workforce than any other modern recovery. Banks are closing every week, and the number one cause that I hear from people back in Wisconsin is the excessive, crushing regulatory burden imposed by this administration and Dodd-Frank is a major cause of that burden. The crushing regulatory regime created by Dodd-Frank continues to keep people out of work, to keep businesses from hiring. It makes it harder for my constituents to get the loans they need to finance the expansion of their business, or to buy their first home."

Subcommittee Continues Review of Jobs Bills

The Capital Markets and Government Sponsored Enterprises Subcommittee, chaired by Rep. Scott Garrett (R-NJ), held a hearing on Wednesday to continue its review of legislative ideas to help small and emerging companies access capital so they can grow and create jobs.

Small businesses are the primary source of job growth in America, yet the sheer weight, volume and complexity of Washington regulations hinders their ability to create jobs and spur economic growth.

“As multiple witnesses have testified to this Committee over the years, our current equity market structure in many ways disadvantages small issuers, who often times find their stocks trading in illiquid markets with little to no research coverage. This has the ultimate effect of raising the cost of capital for these companies, impacting their ability to grow and hire new workers,” said Chairman Garrett.

"In our district we have tens of thousands of small businesses,” said Rep. Bruce Poliquin (R-ME). “We're a district in the state of small business owners, and we know firsthand how costly overregulation is and how it causes people to shut down their business or pass on that cost,” he said.

Committee Hearing Focuses on Protecting Consumers’ Financial Data

The Financial Services Committee’s hearing on Thursday gave members an opportunity to hear from major participants in the payments system about efforts to protect consumers’ financial information from cybercriminals and hackers.

Chairman Jeb Hensarling (R-TX) said in his opening statement, " In the era of “big data,” large-scale security breaches are unfortunately all too common. Every breach leaves consumers exposed and vulnerable to identity theft, fraud and a host of other crimes.”

Chairman Hensarling said he viewed the hearing as a venue for a “thoughtful and constructive dialogue on a bipartisan basis,” about the issue, and he commended Reps. Randy Neugebauer (R-TX) and John Carney (D-DE) for introducing bipartisan data security legislation.

Rep. Neugebauer, chairman of the Financial Institutions and Consumer Credit Subcommittee, said, “Today, I am looking forward to learning about new payments technologies that can continue to facilitate payment efficiency, speed and security. Additionally, I am hopeful we can have a robust policy discussion about what new data security standards are needed to level the playing field. However, I hope all parties involved today understand that technology mandates and innovation must be driven by the private sector."

The Financial Institutions and Consumer Credit Subcommittee will continue the committee's work on protecting consumers’ financial data during its hearing next week.

The Housing and Insurance Subcommittee, chaired by Rep. Blaine Luetkemeyer (R-MO), held a hearing on Thursday to examine the impact that the Consumer Financial Protection Bureau's (CFPB) proposed rule will have on the mortgage closing process.

"For the majority of American consumers, the purchase of a home is the most important and expensive financial transaction they’ll ever make, and the process in place today is confusing and burdensome. 23 percent of respondents in an October 2013 poll by the USA Today said they would rather gain 10 pounds than go through the mortgage process. 7 percent said they would rather spend a night in prison. The system needs to be fixed, and we owe it to consumers to make sure this process works and is as straightforward as possible," Chairman Luetkemeyer said. "No one disagrees that there is need for improvement, but we need to go about this in an appropriate manner and take the time to ensure that consumers aren’t negatively impacted by something designed to help them."

Members and witnesses at the hearing expressed concerns that CFPB is rolling out a very significant without testing the roll-out – similar to the mistake the Administration made with the launch of the Obamacare website.

Witnesses called for a delayed enforcement period so that those impacted by the CFPB's new rule can have sufficient time to work out any difficulties without the threat of enforcement actions.

Members of one firm in my district, with dozens of offices that serve more than 30,000 customers, told me that they fear the Labor Department’s proposal will make it impossible to offer quality services to low- and middle-income customers. Tens of thousands of small investors I represent will have a harder time saving for their futures and those of their children.

After controlling for the impact of monetary policy, bank capital and liquidity conditions, and any voluntary reduction in lending triggered by weak legacy loan portfolio performance or other bank losses, estimates show that supervisory restrictions have a large negative impact on bank loan growth.

The Fed now leads a culture of central bankers who see their job as reducing unemployment and stabilizing prices for consumer goods only, come what may in the markets. This needs to change. In a world in which high trade and money flows tend to restrain consumer prices but magnify asset prices, central banks need to take responsibility for both. After all, asset price inflation is as dangerous as consumer price inflation.

The number and cost of government regulations continued to climb in 2014, intensifying Washington’s control over the economy and Americans’ lives. The addition of 27 new major rules pushed the tally for the Obama Administration’s first six years to 184, with scores of other rules in the pipeline.